Send In The Clowns (European Elections Edition)

By Alen Mattich

reuters

Five-Star Movement activist and comedian Beppe Grillo.

As protest votes go, Beppe Grillo takes the cream pie. And smashes it into the face of the political establishment.

Pundits in and out of Italy are reeling over the comic’s success in the general elections — his anti-austerity and anti-establishment movement captured a quarter of the vote, giving him the leverage to make or break any coalition that forms. Another quarter of the vote went to Silvio Berlusconi, the populist former prime minister who has routinely thumbed his nose at Germany and the European Union. By contrast, Mario Monti, the technocratic prime minister who instigated Italy’s austerity program — and is widely considered as Germany’s candidate in the Italian polls–has only just scraped a tenth of the vote.

Most of the analysis about Italy right now is whether any sort of workable government can be formed and how long it might be expected to last before the next set of elections are called. Markets reacted sharply, sending Italian bond yields higher and equity prices down, especially financials, amid fears that uncertainty will re-open the euro crisis. Eyes are shifting to whether European Central Bank President Mario Draghi might somehow confirm that he will do whatever it takes to guarantee the euro’s survival even if Italy doesn’t manage to form a viable government.

And that’s critical. The degree to which core euro-zone countries — which in effect means Germany with Finnish and Dutch support–back the single currency determines what the ECB will be allowed to do, and that, in turn, will affect how much voters in the struggling countries will be able to turn their backs on austerity and remain in the euro.

Because the real message in the Italian election is that Italians are tired of the years of economic stagnation and pain the euro has come to represent. And it’s not just Italy. The clowns, malcontents and extremists — from the Greek voters’ polarization between the hard right and the hard left, to an upsurge of regionalism in Spain — are finding ever stronger sources of support.

Of course, the euro is only one source of their problems. Many euro-zone economies have been living far beyond their means for a long time and are now having to come to terms with the social benefits that were liberally handed out during recent decades.

For example, Italy’s average age is only just below that of Japan’s. An ever smaller body of workers is supporting an ever larger cohort of pensioners. This is pivotal to the economy’s stagnation of the past decade and more. A Wall Street Journal article notes that Italians born in 1970 will pay 50% more taxes as a percentage of their lifetime incomes than those born in 1952.

Similar demographics are at play elsewhere in Europe.

In essence, Italy’s protest vote is a vote to either have core Europe subsidize its social welfare programs or–eventually and through withdrawal from the euro–to shrink pensioners’ call on national resources through inflation.

But it will take plenty of clowning around before there’s any serious resolution.

Comments (1 of 1)

It brings back the memory of long ago when Europe went through a financial crisis after
the first WW. It was an awful time. People just wanted any solution and the easy
way out. Unfortunately that can lead to a deeper trouble and a much longer and
Harder road to recovery.